PC Makers Hit Speed Bumps; Being Faster May Not Matter

By JOHN MARKOFF

Published: September 30, 2002

Todd Schreiner, a Chicago business consultant, went to his local Best Buy recently to check out hot new PC's that could replace his three-year-old computer. He decided not to buy.

Mr. Schreiner represents an unpleasant new reality for the personal computer industry. For decades it has relied on the certainty that customers have an unquenchable desire for speedier new machines. But computers have reached a point where for the most common home purposes — Web surfing, e-mail and word processing — they are already more than fast enough to suit a typical home user's needs.

"I couldn't conceive of a situation with my software applications today where I need a computer with a 2.4 gigahertz Pentium processor," Mr. Schreiner said, referring to one of Intel's fastest new chips. So he decided to make do with his three-year-old Dell PC, with a Pentium III chip only one-fifth as fast, and instead spent his money on more memory, a new digital camera and a CD-ROM burner to store his photos.

More than any other time in its 27-year history, the personal computer industry has found itself in a quandary, having to concoct new reasons to persuade the world's 500 million PC owners to replace their existing machines. And the problem goes beyond the computer makers themselves: no new computer generally means no new copy of Microsoft Windows sold, no upgrades to word processing or spreadsheet programs.

Computer and chip manufacturers have long used advances in speed as a central point to sell new computers. To be sure, such marketing will still appeal to people who edit video or process complex photographic images, for example, or make calculations with large masses of data, or play video games on the PC. They still see big benefits when they upgrade to faster chips for their processor-intensive tasks.

But even some of them are having second thoughts. Norman H. Nie, a political scientist at Stanford who has long thought of himself as a PC power user, was the co-inventor of a widely used and computer-power-hungry software program known as the Statistical Package for the Social Sciences. For more than three decades the software has taxed the power of first mainframes, then minicomputers and finally PC's.

Dr. Nie has always acquired new, more powerful computers as they became available. But he was stunned not long ago to discover that his faster new computer did not improve the speed of his software. He predicted that for many people, the upgrade cycle might be ending.

"We're beginning to see a time where — except for the third world — the replacement cycle for computers looks like Detroit," where the desire for a new car every year yielded to a slower turnover, he said.

That new attitude is shown clearly in a recent national opinion survey by Odyssey Ventures, a San Francisco market research firm. Among households with PC's, the intention to buy a new computer in the next six months has fallen to just 11 percent from 21 percent in early 2000 and the lowest level in five years. And half of PC owners now have home computers that are at least two years old — more than at any time since 1994, when Odyssey began keeping track. The pace of upgrades is crucial because, according to the Gartner market research organization, they account for 80 to 85 percent of new computer sales.

"We've come to a plateau," said Nicholas Donatiello Jr., the chief executive of Odyssey, "What we're seeing is there are other digital needs in the home, and people may be spending money around the TV rather than the PC."

The computer industry's boosters insist that growth has leveled off before and that slumps have been only temporary. Each time the PC business has appeared to run out of steam in the past it has been revived by an burst of software creativity — from the spreadsheet to video games to the Internet — that has attracted millions of first-time buyers followed by successive waves of upgraders.

The cycle has repeated itself so regularly over time that Intel, the company that pioneered the microprocessor chip that made the PC possible, has a name for the process: "the digital spiral." At regular intervals, driven by the industrial process known as Moore's Law, computers increase in power as new hardware emerges. And like clockwork, software is developed to take advantage of the new power.

"Is there another spin of the software spiral in front of us to drive growth?" asked Paul S. Otellini, Intel's president and chief operating officer. "I believe so." But so far, innovative new software to spur big new sales has not materialized.

The industry's slowing growth comes at a time when its rate of technology advancement has never been faster. At the end of 1999, most personal computers being sold were based on 500 megahertz to 600 megahertz Intel Pentium III chips. By next fall — three years later — the typical performance will have shot up four times, on average, to above 2 gigahertz, according to industry analysts.

The PC industry continues to hold out hope that a variety of new applications — ranging from increasingly complex video games to home video editing and new needs that will arise if the high-speed Internet finally takes hold — will come along and start a new cycle of growth.